DAILY TRENDS NEWS

J.C. Penney Posts Loss

By SAABIRA CHAUDHURI And KAREN TALLEY

J.C. Penney Co. swung to a fiscal-second-quarter loss as weak sales squeezed the retailer’s margins. The results raise further questions about Chief Executive Ron Johnson’s new pricing strategy, but he vowed Friday to “stay the course.”

The quarter was the second in a row that Penney turned in dismal results since Mr. Johnson committed to “everyday low prices.” Penney now says it won’t meet previous earnings projections, but didn’t provide an updated estimate as it enters the all-important second half of its fiscal year.

For the quarter ended July 28, Penney’s sales at stores open more than a year declined 22%—a deeper drop than expected by even the most bearish analysts. Total sales decreased 23% to $ 3.02 billion, which includes the effects of the company’s exit from its outlet business, while Internet sales sank 33%.

Penney said sales for the quarter were hurt by its decision to “significantly reduce” its marketing activities during the latter half of the quarter, as it reconsidered its approach to pricing and marketing in time for the back-to-school season.

Penney is undertaking an overhaul to set itself apart from rivals like Macy’s Inc. and Kohl’s Corp. In February, Penney stopped using promotions in favor of everyday low prices, a move that so far has alienated customers. Penney is in the midst of setting up stores-within-stores, hoping the boutique-like setting will win them back.

In May, Penney reported a steep quarterly loss as total sales declined 20% and same-store sales slid 19% on a double-digit drop in customer traffic.

The results renew questions about Mr. Johnson’s strategy of cutting discounts in favor of offering generally lower prices at all times. Starting this month, the retailer made deep price cuts across much of its merchandise, under a new policy that gets rid of monthlong specials.

“This month we simplified our pricing, launched the rest of our new shops, and accelerated our marketing efforts to focus on brands, products and value. Early response to these efforts has been very encouraging,” Mr. Johnson said.

Penney also eliminated its dividend earlier this year, raising investor concerns about its cash flow. It said Friday it ended the second quarter with about $ 888 million in cash and equivalents and that cash used in operations in the second quarter was $ 32 million, $ 545 million less than the first quarter.

Mr. Johnson defended the company’s balance sheet, calling it “rock solid.” He added that the transition from a “highly promotional business model to one based on everyday value will take time.”

The retailer reported a loss of $ 147 million, or 67 cents a share, compared with a year-ago profit of $ 14 million, or seven cents a share. The most recent quarter included $ 159 million in restructuring and management-transition charges. Excluding pension plan expenses, the adjusted loss was 37 cents a share, compared with a year-ago profit of 19 cents.

Analysts polled by Thomson Reuters had projected a per-share loss of 25 cents on revenue of $ 3.2 billion.

Gross margin narrowed to 33.2% from 38.3%, a drop the company said partly came from lower than expected sales and about $ 102 million of markdowns taken to clear discontinued inventory in preparation for new product arriving in the fall.

Earlier this week, Macy’s reported its second-quarter earnings surged 16%, with the department store seeing revenue, and particularly online sales, rise as its localized product offerings and its raft of exclusive brands resonated with customers. Kohl’s, however, said its fiscal second-quarter earnings fell 20% as the department-store operator reported weak same-store sales and margins, while cutting its earnings guidance for the year.